- COVID-19 Key Tax System Priority
- Changes already announced to support business recovery
- Government recognises need for cashflow and reduced compliance
The key priority for tax policy at present is to support the COVID-19 response and recovery.
Tax was notably absent from today's Budget announcement with no tax cuts, the exception being provision for businesses to claim a tax deduction for unsuccessful or abandoned assets. A number of policy developments have already been signaled for later in the year. Instead the Budget recognises the key role the tax system has played in the COVID-19 response, and will continue to do so in the coming months.
Driven by a weakened economy, core crown revenue is expected to decline from 30.8 percent of GDP to 28.8 per cent by 2021/22 and returning to 29.4 per cent by 2023/24. "Tax increases would not have been well received, and at this stage of recovery, would not have been an effective response to COVID-19." says NZ Tax Leader John Cuthbertson.
However, don't expect to see tax cuts in the remainder of this term of Government either. The Minister of Finance in his closing remarks to Parliament said "this government will never put the burden of those [difficult] choices on those who can least afford it. We will not cut the services that are their lifelines. We will not preach austerity, but line our pockets with tax cuts."
There have been significant changes to the tax system in recent weeks that will have a positive, ongoing impact for businesses. As part of the $1.9 billion package announced last month, a temporary measure now enables businesses to carry losses in the 2020 or 2021 years back to offset them against profits in the preceeding year. A permanent measure is expected to be introduced in legislation in the second half of the year and is likely to apply from the 2022 income year.
In addition, non-residential buildings can once again be depreciated from the 2021 income year.
While we are yet to see the legislation we can also expect the introduction of a 'same or similar business' test for corporate loss continuity later in the year. This will enable businesses to restructure, receive new equity investment to survive and even expand without having to weigh up forfeiture of existing tax losses.
Today's budget shows ongoing support for a tax system that is fair, and supports a sustainable revenue base. We are pleased to see Government highlighting the need for policy and tax administrative measures to increase business cashflow and reduce compliance pressures now and to aid economic recovery by supporting investment and job creation.
The BAU approach to the tax system provides taxpayers with some much needed certainty right now and affirms that we have systems in place to efficiently respond to COVID-19.